5 Secrets of Warren Buffett's Success

By SiliconIndia  |  
Bangalore: Warren Buffett, the most successful investor of all time had a tough fight throughout his life to make his way in the market, but he had some consistent principles which became the milestones of this journey of his which led him where he is today. Having started his career as a door to door seller and newspaper boy, today he is known as the 'Oracle of Omaha', the CEO of Berkshire Hathaway.

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently," he says. Let's scrutinize some of his secrets which helped him being success.

1. Simple Living and High Thinking

Though he is the third richest man in the world, but believe it or not he lives a very simple life considering his status. He still lives in a house which he bought long back and likes to dress up in normal clothes.

"I just naturally want to do things that make sense. In my personal life too, I don't care what other rich people are doing. I don't want a 405 foot boat just because someone else has a 400 foot boat," he says.

2. Having No Unrealistic Expectation

Unlike many investors, who being overconfident, start expecting much more than normal out of a stock which is unrealistic, but Buffett never did so. You will probably smile to what he says about it - "Earning more than 12 percent out of a stock is pure dumb luck."

"During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3 per cent when compounded annually .... For investors to merely match that 5.3 per cent market-value gain, the Dow - recently below 13,000 - would need to close at about 2,000,000 on December 31, 2099! If your adviser talks to you about double-digit returns from equities, explain this math to him," he says.

3. Read Everything

At a very early age, Buffett recognized the fact that 'knowledge is everything'. He had read every book on finance in the Omaha library by the age of 10. He has maintained this habit till date. He reads every possible movement in the market and also scrutinizes them. Jeff Matthews, Author of 'Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett' says, "Reading is probably the most favorite hobby of Buffett."

4. Not Timing the Market

Though Buffett has a very strong view point on the price levels suitable to every single share but he never tries to time the stock market. Whereas most of other investors just do the opposite. They tend to time the market that is they try to predict when will be the good time to sell a particular stock so that they can fetch a good return.

5. Not Diversifying Too Much

Buffett likes to keep his portfolio limited and simple, and also believes in adopting straightforward investing strategies. "I want to be able to explain my mistakes. This means I do only the things I completely understand," he says.

He believes that keeping one's attention restricted only to some stocks and investment avenues, and not diversifying too much also helps. "Over time, you will find only a few companies that meet these standards -- so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes," says Bufett.